Co-operative Bank has reported a £204.2 million first-half loss and warns it it likely stay in the red until at least 2017.

The bank's losses have widening against a loss of £77 million reported in the first half of last year and follow a loss of £559 million reported in the first half of 2013.

Co-operative Bank said the losses widened as a result of higher legal costs and lower income as a result of a smaller balance sheet, though £38.2 million of the losses in the first half were down to asset sales required to reduce its own debt levels.

The bank, which was bailed out twice by its investors after a £1.5 billion capital shortfall was discovered two years ago, said its core business has begun to stabilise and the number of current account holders leaving the bank has slowed, with mortgage lending also recovering.

However it expects to book further losses this year and at least 2016.

Last week the lender was spared a fine of at least £120 million despite been found to have misled investors and failing to keep regulators informed as it neared collapse.

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) spared the bank a potential £120 million fine after taking into account the state of its balance sheet.

Despite widened losses, Co-op Bank chief executive Niall Booker said the lenders turnaround drive was on course and the bank is now in better shape to withstand an economic downturn.

He added: “Although the core bank remains work in progress, its performance is also beginning to improve as we increase efficiency, continue to re-invest in the brand and work with customers to offer competitive products that meet their needs.

“Of course, we have always said that addressing legacy issues will continue to dominate financial performance for some time and there is considerable work ahead towards a full recovery.”